Which of the Following Statements Is False

question 11

Multiple Choice

Which of the following statements is false?

• A) Even though firms have not issued new equity, the market value of equity has risen over time as firms have grown.
• B) While firms seem to prefer debt when raising external funds, not all investment is externally funded.
• C) To receive the full tax benefits of leverage a firm needs to use 100% debt financing.
• D) If bankruptcy is costly, these costs might offset the tax advantages of debt financing.

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Definitions:

Prepaid Expenses

Payments made for goods or services to be received in the future, treated as assets on a balance sheet until used.

Operating Expenses

All expenses incurred from a company's operational activities, excluding cost of goods sold, interest, and taxes.

Operating Activities

Cash flows directly related to earning income, including day-to-day transactions like selling products and paying wages.

Financing Activities

Transactions that result in changes in the size and composition of the equity capital or borrowings of the entity, as reported in a company’s cash flow statement.